A C Mahajan, chairman of the BCSBI, has been quoted as saying that the revised code ensures the customer's interest is fully protected, but we have no idea of the exact code even a week after this story was published. Neither the BCSBI website nor the Reserve Bank of India (RBI) website provides any information.
Until now, banks had it their own way. In cases of electronic fraud, the agreement with customers absolved banks from responsibility for unauthorised transactions, even if these were suspected to have been carried out by their own employees. Third-party products were aggressively sold on the basis of a "buyer beware" philosophy. Customers have always found this to be bizarre. Institutions are large, resourceful and set the rules. They also evoke trust. After all, you have entrusted your money to them. A middle-class salaried employee who notices that he has been electronically robbed by a scam artist in Greece could hardly have committed the fraud and be held responsible for it. It is the bank's system that has been compromised and the bank should compensate him. Until now, banks stalled such cases, showing us the strange rule that, though the bank was the custodian of money, it was not responsible for its loss.
So how does the new BCSBI code help, especially since it is non-mandatory? This is where the Office of the Banking Ombudsman comes in. A violation of the BCSBI code is a cause for you to complain to the banking ombudsman, governed by rules set by the RBI that are amended from time to time. The banking ombudsman scheme suffered from many limitations. Its ambit did not include internet banking frauds or mis-selling of third-party products - areas in which the customer is most vulnerable and the bank has complete protection from virtually any kind of complaint. The banking ombudsman cannot even decide on complaints involving more than Rs 10 lakh.
These - and other - limitations make the scheme a limited forum for customer issues, even as technology and new banking services expand to change banking. The banking ombudsman deals with traditional areas such as deposit accounts, interest rates, remittances, loans, etc - which, of course, form the bulk of banking transactions. But even in those areas, how have the customers fared in this forum? In 2011-12, the last year for which the data are available, the banking ombudsman rejected 45.5 per cent of the "maintainable complaints". The rejection figure has been rising: it was 32 per cent in 2009-10 and 39.3 per cent in 2010-11. Having examined a few cases in Moneylife Foundation, we notice that the quality of judgement varies widely. Some banking ombudsmen are willing to be innovative for the sake of customers; others go by the rulebook, which only helps banks even when customers have been taken for a ride.
Besides, banking ombudsmen have been rejecting many complaints because it is outside their narrow ambit. In 2011-12, as many as 12,216 cases were rejected for this reason. This was a huge number. Of the total of 37,455 complaints rejected, 32.2 per cent did not fall within the banking ombudsman's ambit. You can interpret this in two ways. One, customers have not been informed well enough about the narrow scope of the banking ombudsman - in other words, the RBI is insensitive to the expanding nature of banking complaints.
Indeed, the RBI is expanding the scope of the banking ombudsman at a glacial speed. Until 2007, customers could not appeal against rejections by the banking ombudsman; they could appeal only against awards given by the banking ombudsman. This was changed in 2007, well after pervasive and aggressive mis-selling of personal loans, credit cards and third-party products. The banking ombudsman would not consider cases related to internet banking until 2009. However, the precise details of what sort of internet banking operations come under the banking ombudsman were not specified. Interestingly, the 2009 amendment specified for the first time that the banking ombudsman could award compensation up to Rs 1 lakh in the case of complaints arising out of credit cards and also brought the rules governing recovery agents within the banking ombudsman's ambit. And now comes the news - although the RBI has not found time to officially inform us - that electronic fraud and third-party products have been included in the banking ombudsman's ambit.
If you wonder why it took the RBI till 2007 to add appeals, till 2009 to add credit cards and recovery agents and till 2014 to add electronic frauds and third-party products to the banking ombudsman's scope, this is how slow and hard-fought all pro-consumer decisions have been. You might assume that, as a regulator, the RBI would ensure a fair redressal system to the small individual against the giant banking institution. But successive RBI governors and deputy governors never saw it this way; K C Chakrabarty was the lone exception. And now that the regulation has moved one more small step, will the RBI investigate why such large numbers of complaints still fall outside the banking ombudsman's ambit. What is the RBI still missing?